NYT: The Government Will Get Creamed When It Has To Refi Its Debt

The New York Times -- not usually the first publication you'd think of when it comes to calling for fiscal prudence -- sounds the alarm over the government's massive debt load.

The premise is that, although we're fine now, borrowing money cheaply, we've got a huge refi coming up, and there's an excellent chance it will be way more expensive.

With the national debt now topping $12 trillion, the White House estimates that the government's tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.

In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.

A really astounding fact, noted in the article, is that due to uber-low interest rates, our annual debt-service requirements are lower this year than they were last.

Says one advocate of lower deficitse: "the government is living on teaser rates."

Anyway, this is possible, but again, remember Japan, and the way its debt position rocketed higher, while interest rates stayed wildly low. This state can last for quite a while.

I do not think that the Treasury has thought through the arduous task that it will confront when the exigencies of circumstances force it to sell piles of debt into a bear market. I have oft stated here that a Federal Reserve rate hike is something well off in the distant future.

However, that view does not preclude me from contemplating the debacle which shall ensue when my new friends at the Treasury realize that they need to issue trillions and investors have no compelling reason to buy because the FOMC has instituted a program to normalize rates.